The past year was a very challenging one in several ways and only a few people could have predicted that the world will experience that magnitude of financial turbulence. We are coming from a year of the worst financial meltdown most people alive today have ever seen. In the past year, some of the largest and most respected financial institutions in the world were on the brink of collapse, requiring the various governments to quickly intervene by injecting liquidity into the financial markets.
The calamitous downfall of one of the titans of Wall Street was a rude awakening for many investors of the severity and extent of the situation, and what followed was global financial crisis.
According to the provisional data by the National Bureau of Statistics, there was a decline in the headline inflation rate as measured by consumer price index from 15.1% in December 2008 to 12.4% as at November 2009. However, food inflation was 13.5% at the end of the fourth quarter of 2009. A higher GDP growth was recorded in 2009 at 6.9% up from the 5.98% recorded in 2008. The non-oil sector was the major driver of this growth, although in the second quarter, an increase in the growth of the non-oil sector GDP complemented this development.
The year 2009 will be remembered for extreme volatility and dysfunction in the financial system, particularly private sector credit which serves businesses and households. In the banking sector, a posture of risk aversion or at best extreme credit caution persists, thus crippling most businesses and with under-developed debt capital market as well as equity market in hibernation, working capital virtually disappeared. The current post consolidation banking reform is aimed strengthening the banking system to forestall systemic crisis.
While we are working with our monetary counterparts in ensuring long-run soundness and stability of the financial system, there is the need for a quick exit from the financial institutions rescued with public funds so as to deepen trust and confidence in our financial system. It is clear to me that the economy cannot grow and employment cannot also be created without credit to the private sector.
The Stock market recorded a decline in Market Capitalization from =N=6.96 trillion in 2008 to =N=4.989 trillion as at December 2009. This abysmal performance of the market was exacerbated by the problems in the banking sector as most quoted companies in the non-bank sector recorded good performance in the market.
This Committee in 2009 distributed to the various tiers of government a total of =N=2,831 billion as Statutory revenue allocation, =N=449.644 billion as revenue from Value Added Tax, =N=735.017 billion as augmentation for shortfalls in the budgeted revenue, =N=158.679 billion as exchange gain difference between the prevailing exchange rate and the budgeted exchange rate, while a total sum of $5.5 billion dollars was distributed from the Foreign Excess Crude Account. In the last ten years, this is the highest injection into the system in a fiscal year.
Undoubtedly, Nigeria’s macroeconomic environment is bright and the outlook is promising with reasonable macroeconomic stability, especially with the significant progress made in addressing the challenges in the Niger Delta through the amnesty programme, the on-going reintegration and rehabilitation of former militants, and sustained improvement in the price and in oil production.
The outlook for the fiscal year 2010 is predicated on some basic assumptions. These include: Oil production of 2.088mb/d; Benchmark oil price of US$57/barrel; Joint Venture cash calls of US$5billion; Average exchange rate of N150 to the US dollar; Target GDP growth rate of 6.1%; Target inflation rate of 11.2% and a deliberate expansion in budgeted expenditure by about and a deliberate expansion in budgeted expenditure by about 31.5% to counter the effect of the credit crunch on the economy as well as to reduce the infrastructure gap.
The current $80 per barrel spot price of Nigeria’s reference oil is being driven by the low value of the US dollar and the low interest rates in the US. The downside risk is still very high and there is need to be cautious though pragmatic.
In recognition of the imperatives of a strong and robust banking sector to accelerate economic recovery, measures have been put in place to restore the viability of the sector, especially with the Asset Management Company initiative to assist in restructuring and further improving the balance sheets of banks, and enhance the flow of credit to the real sector to boost growth and development of the economy.
In 2010, appropriate measures to enhance and sustain macroeconomic stability, the soundness of the financial sector, improvement of public expenditure management as well as the growth and diversification of the economy are being put in place. Besides, government will continue the reform of the downstream petroleum sector with a view to removing the inefficiencies that have bedevilled the sector, enhance competition as well as ensure resource flow to the sector. All these initiatives will boost employment and enhance transformation of the Nigerian economy.
Indeed, the overarching objective of the 2010 Federal Budget is to accelerate economic recovery through targeted fiscal interventions intended to further stimulate the economy and support private sector growth. Capital expenditure has been rationalised and prioritised to avoid spreading resources too thinly across too many initiatives.
Also, government’s debt position will remain sustainable, with an external debt stock of US$3.97 billion as the end of December 2009. Besides, Nigeria’s external reserve position remains quite comfortable at $42.409 billion at end 2009 in view of the external liabilities of the private and public sector as well as import coverage. The official and parallel market exchange rates have converged considerably as a result of further liberalization of the inter-bank market by the Central Bank of Nigeria. This trend will be sustained in the coming years, especially in 2010 when substantial recovery of oil production is expected with improved performance in critical secto
rs and overall real GDP growth.
In conclusion, we expect our economy to witness appreciable growth performance in 2010 with economic fundamentals remaining strong and resilient. However, the task of transformation requires the synergy of efforts of all Nigerians, and other stakeholders including, the labour unions, civil society groups, professional groups, private sector operators, and development partners. Therefore, all hands should be on deck in building the economy as I’m hopeful circumstances will look very much better than they do today.
Remi Babalola, a Finance Minister of State delivered this at the meeting of Federation Account Allocation Committee in January 2010
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